RBI’s decision to raise the repo rate by 50 basis point is in line with our expectations. The RBI has been compelled to take steps to control India’s Consumer inflation which has remained above the tolerance level of 6%. So far the commercial banks have transmitted the policy rate hike to the borrowers, resulting in an increase in lending rates across all the sectors including real estate.
Today’s rate hike will further harden the rates. In terms of liquidity, the measures have cut the extent of liquidity window. However, adequate liquidity is managed, and improved manufacturing capacity utilization will be supportive of credit growth going forward.
For the real estate sector specifically, the third subsequent rate rise will mean a deterioration of affordability and may impact the sentiments of home buyers. With the cumulative rate hike until today, assuming complete transmission, a prospective home buyers’ affordability shrinks by around 11% i.e. from an ability of purchasing a house of Rs1 crore value shrinking to Rs89 lakh now.
Developers are expected to undertake mitigating measures to soften the blow on homebuyer affordability. The increase of interest rates and the subsequent transmission of these into the home loan rates, while has the capability of impacting demand, we hope that the latent demand for housing will soften the impact of the latest change in the repo rates.
Above views belong to Shishir Baijal, Chairman & Managing Director, Knight Frank India
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